RHB Rehabcare Grp. Inc.

RehabCare Group, Inc. (NYSE:RHB) today reported the following financial results:

            First Fourth First Quarter Quarter Quarter Amounts in millions, except per share data 2011 2010 2010   Consolidated Operating Revenues $ 364.6 $ 339.3 $ 322.0 Consolidated Operating Earnings (a) 37.8 36.1 31.6 Consolidated Net Earnings from Continuing Operations 19.5 18.6 14.3 Gain from Discontinued Operations, Net of Tax (b)   2.9     0.7     0.5 Consolidated Net Earnings 22.4 19.3 14.8 Net (Earnings) Loss Attributable to Noncontrolling Interests   (1.6 )   (2.2 )   0.2 Net Earnings Attributable to RehabCare 20.8 17.1 15.0 Diluted Earnings per Share Attributable to RehabCare: Earnings from Continuing Operations, Net of Tax 0.71 0.66 0.59 Net Earnings 0.83 0.69 0.61   Hospital Operating Revenues 181.4 164.8 152.4 Hospital EBITDA 32.0 25.1 19.7 Hospital Operating Earnings 25.9 19.2 14.3   SRS Operating Revenues 136.9 128.1 126.4 SRS EBITDA 9.6 8.8 11.7 SRS Operating Earnings 8.0 7.4 10.3   HRS Inpatient Operating Revenues 33.1 33.7 31.1 HRS Outpatient Operating Revenues   13.3     12.7     12.1 HRS Operating Revenues 46.4 46.4 43.2 HRS EBITDA 9.2 10.2 7.5 HRS Operating Earnings 8.7 9.6 6.9   (a)   The first quarter of 2011 includes certain transaction expenses related to the pending merger with Kindred Healthcare, Inc. of $4.8 million on a pretax basis, or $3.0 million after tax (see table on page 9). These costs have not been allocated to the Hospital, Skilled Nursing or Hospital Rehabilitation Services divisions.   (b) The after-tax gain from discontinued operations of approximately $3.0 million in the first quarter of 2011 includes a $3.1 million after-tax gain on the sale of an inpatient rehabilitation facility (IRF) in Miami and a $0.1 million after-tax loss from the Miami IRF’s discontinued operating activities.  

Management Comments

John H. Short, Ph.D., RehabCare President and Chief Executive Officer, commented, “We had a great first quarter with strong year-over-year earnings growth, primarily the result of significantly improved operations and volumes in our Hospital division. The anticipated benefits of our merger with Triumph HealthCare have come to fruition.”

Financial Overview of First Quarter

Consolidated operating revenues for the first quarter of 2011 were $364.6 million, a 13.2% increase compared to $322.0 million in the 2010 first quarter.

Consolidated net earnings attributable to RehabCare were $20.8 million, or $0.83 per diluted share, in the first quarter of 2011 compared to $15.0 million, or $0.61 per diluted share, in the prior year quarter. Earnings in the first quarter of 2011 included $3.0 million, or $0.12 per diluted share, of after-tax expenses for certain transaction costs related to the pending merger with Kindred (see table on page 9). Earnings in the first quarter of 2011 also included a $3.0 million after-tax gain from discontinued operations.

Effective January 1, 2011, the Company sold its inpatient rehabilitation facility (IRF) in Miami to Select Medical Corporation in exchange for Select’s 70-bed long-term acute care hospital (LTACH) in Hammond, Indiana. The Company’s $3.0 million after-tax gain from discontinued operations in the first quarter of 2011 includes a $3.1 million gain on the sale of the Miami IRF and a $0.1 million after-tax loss from the IRF’s discontinued operating activities.

Operating revenues in the Hospital division for the first quarter of 2011 increased 19.0% to $181.4 million from $152.4 million in the first quarter of 2010. Same store revenues increased $13.2 million, or 8.7%, compared to the year ago quarter. Earnings before interest, taxes, depreciation and amortization (EBITDA) improved from $19.7 million, or 12.9% of revenue, in the first quarter of 2010 to $32.0 million, or 17.6% of revenue, in the first quarter of 2011.

At quarter end, the Hospital division operated a total of 35 hospitals, including 30 LTACHs and five IRFs.

Operating revenues in the Skilled Nursing Rehabilitation Services (SRS) division increased 8.3% from $126.4 million in the first quarter of 2010 to $136.9 million in the first quarter of 2011, driven by a 2.4% increase in the average number of contract therapy programs operated and a 9.9% increase in contract therapy same store revenues. Operating earnings were $8.0 million, or 5.8% of revenue, compared to $10.3 million, or 8.2% of revenue, in the first quarter of 2010.

On March 31, 2011, SRS operated in 1,178 locations compared to 1,112 locations at the end of the fourth quarter of 2010 and 1,125 locations at the end of the first quarter of 2010. Openings and closings in the quarter totaled 89 and 23, respectively, resulting in a net 66 new units. SRS had 12 signed but unopened contracts at the end of the first quarter.

The Hospital Rehabilitation Services (HRS) division’s 2011 first quarter operating revenues increased 7.2% to $46.4 million from $43.2 million in the first quarter of 2010. Inpatient operating revenues increased 6.3% and same store acute revenues improved 5.4% over the prior year quarter. The average number of inpatient programs increased 0.9% compared to the prior year quarter. Outpatient operating revenues increased 9.5% in the 2011 first quarter despite a 3.6% decline in the average number of outpatient programs. This was driven by a 13.6% improvement in average revenue per program including 9.2% same store growth in outpatient revenues. HRS operating earnings were $8.7 million, or 18.7% of revenue, compared to operating earnings of $6.9 million, or 16.0% of revenue, for the 2010 first quarter.

At December 31, 2010, the division operated 105 IRF programs, flat sequentially and up from 103 a year ago. The division had one IRF opening and one IRF closing, one subacute opening, one outpatient opening and two outpatient closings during the first quarter. At March 31, 2011, the division had one signed but unopened IRF.

Balance Sheet and Liquidity

At March 31, 2011, the Company had $33.6 million in cash and cash equivalents and $380.2 million in outstanding debt excluding unamortized original issue discounts. The Company has paid down debt by $18.3 million since the beginning of the year. Days sales outstanding decreased sequentially from 61.9 days to 61.6 days.

For the quarter ended March 31, 2011, the Company generated cash from operations of $19.8 million and expended $3.1 million for capital expenditures, principally related to companywide information systems and hospital facility maintenance capital.

Outlook

In connection with its pending merger with Kindred Healthcare, the Company has suspended its 2011 outlook.

About RehabCare Group

Established in 1982 and headquartered in St. Louis, MO, RehabCare (www.rehabcare.com) is a leading provider of post-acute care, owning and operating 35 long-term acute care and rehabilitation hospitals and providing program management services in partnership with over 1,300 hospitals and skilled nursing facilities in 42 states and Puerto Rico. RehabCare is included in the Russell 2000 and Standard and Poor’s Small Cap 600 Indices.

Forward-Looking Statements

Information set forth in this document contains forward-looking statements, which involve a number of risks and uncertainties. RehabCare cautions readers that any forward-looking information is not a guarantee of future performance and that actual results could differ materially from those contained in the forward-looking information. Such forward-looking statements include, but are not limited to, statements about the benefits of the business combination transaction involving RehabCare and Kindred, including future financial and operating results, the combined company’s plans, objectives, expectations and intentions and other statements that are not historical facts.

This press release contains non-GAAP financial measures as such term is defined in Regulation G under the rules of the Securities and Exchange Commission. While the Company believes these non-GAAP financial measures are useful in evaluating the Company, this information should be considered as supplemental in nature and not as a substitute for or superior to the related financial information prepared in accordance with GAAP. Further, these non-GAAP financial measures may differ from similarly titled measures presented by other companies. The Company has included reconciliations of these non-GAAP measures to the most directly comparable GAAP measure in the tables of this release.

 

I. Condensed Consolidated Statements of Earnings

(Unaudited; amounts in thousands, except per share data)       Three Months Ended Mar. 31,     Dec. 31,     Mar. 31, 2011 2010 2010   Operating revenues $ 364,599 $ 339,344 $ 321,954 Costs and expenses: Operating 284,980 267,836 256,636 Selling, general and administrative 33,603 27,397 26,535 Depreciation and amortization   8,223     7,998     7,218   Total costs and expenses   326,806     303,231     290,389     Operating earnings 37,793 36,113 31,565   Interest income 12 20 18 Interest expense (7,468 ) (7,866 ) (8,500 ) Other income (expense), net (14 ) 312 7 Equity in net income of affiliates   163     199     116     Earnings from continuing operations before income taxes 30,486 28,778 23,206 Income tax expense   11,024     10,148     8,941   Earnings from continuing operations 19,462 18,630 14,265 Gain from discontinued operations   2,968     673     564   Net earnings 22,430 19,303 14,829 Net (earnings) loss attributable to noncontrolling interests   (1,665 )   (2,250 )   164   Net earnings attributable to RehabCare $ 20,765   $ 17,053   $ 14,993     Amounts attributable to RehabCare: Earnings from continuing operations $ 17,797 $ 16,380 $ 14,429 Gain from discontinued operations   2,968     673     564   Net earnings $ 20,765   $ 17,053   $ 14,993     Diluted EPS attributable to RehabCare: Earnings from continuing operations $ 0.71 $ 0.66 $ 0.59 Gain from discontinued operations   0.12     0.03     0.02   Net earnings $ 0.83   $ 0.69   $ 0.61     Weighted average diluted shares 25,025 24,770 24,655  

II. Condensed Consolidated Balance Sheets

(Amounts in thousands)       Unaudited     March 31, December 31, 2011 2010 Assets Cash and cash equivalents $ 33,622 $ 23,205 Accounts receivable, net 249,015 231,311 Deferred tax assets 24,094 21,034 Other current assets   11,221   14,559 Total current assets 317,952 290,109   Property and equipment, net 117,386 119,591 Goodwill 567,863 559,866 Intangible assets 129,576 127,227 Investment in unconsolidated affiliate 4,924 4,913 Assets held for sale — 10,407 Other assets   22,639   23,588 $ 1,160,340 $ 1,135,701 Liabilities & Equity Current portion of long-term debt $ 7,791 $ 9,116 Payables & accruals   169,292   163,380 Total current liabilities 177,083 172,496   Long-term debt, less current portion 365,138 381,772 Other non-current liabilities 62,050 60,450 Stockholders’ equity 534,942 500,098 Noncontrolling interests   21,127   20,885 $ 1,160,340 $ 1,135,701  

III. Condensed Consolidated Statements of Cash Flows

(Unaudited; amounts in thousands)       Year Ended March 31, 2011     2010   Net cash provided by operating activities $ 19,843 $ 8,511 Net cash used in investing activities (1,007 ) (5,151 ) Net cash provided by (used in) financing activities   (8,419 )   (699 )   Net increase in cash and cash equivalents 10,417 2,661 Cash and cash equivalents at beginning of period   23,205     24,690   Cash and cash equivalents at end of period $ 33,622   $ 27,351      

Supplemental information:

Additions to property and equipment $ (3,140 ) $ (5,241 )  

IV. Operating Statistics (Unaudited; dollars in thousands)

      First     Fourth     First Quarter Quarter Quarter 2011 2010 2010

Hospitals (a)

Operating revenues $ 181,374 $ 164,778 $ 152,362 Operating expenses 137,726 128,423 122,148 Selling, general and administrative 11,670 11,247 10,541 Depreciation and amortization   6,052     5,946     5,374   Operating earnings $ 25,926 $ 19,162 $ 14,299 Operating earnings margin 14.3 % 11.6 % 9.4 %   EBITDA $ 31,978 $ 25,108 $ 19,673  

LTACHs

Number of hospitals – end of period 30 29 28 Available licensed beds – end of period 1,696 1,605 1,593 Admissions 3,982 3,680 3,563 Patient days 105,023 96,834 90,455 Average length of stay (Medicare days only) 27 25 27 Net inpatient revenue per patient day $ 1,586 $ 1,545 $ 1,519 Occupancy rate 69 % 66 % 63 % Percent patient days - Medicare 75 % 74 % 73 %  

IRFs (a)

Number of hospitals – end of period 5 5 5 Available licensed beds – end of period 183 183 183 Admissions 885 921 903 Discharges 872 935 868 Average length of stay (Medicare days only) 12 12 13 Net inpatient revenue per discharge $ 15,112 $ 14,504 $ 15,022 Occupancy rate 68 % 68 % 70 % Percent patient days - Medicare 72 % 71 % 71 %  

(a) Amounts in all periods exclude West Gables Rehabilitation Hospital, which was sold effective January 1, 2011, and accounted for as a discontinued operation.

 

IV. Operating Statistics Continued (Unaudited; dollars in thousands)

      First     Fourth     First Quarter Quarter Quarter 2011 2010 2010

Skilled Nursing Rehabilitation Services

Operating revenues $ 136,871 $ 128,132 $ 126,352 Operating expenses 114,500 107,344 103,333 Selling, general and administrative 12,781 11,950 11,367 Depreciation and amortization   1,595     1,466     1,307   Operating earnings $ 7,995 $ 7,372 $ 10,345 Operating earnings margin 5.8 % 5.8 % 8.2 %   EBITDA $ 9,590 $ 8,838 $ 11,652   Average number of contract therapy locations 1,158 1,146 1,131 End of period number of contract therapy locations 1,178 1,112 1,125   Patient visits (in thousands) 2,161 2,008 2,020    

Hospital Rehabilitation Services

Operating revenues Inpatient Rehabilitation Facility (IRF) $ 30,745 $ 31,469 $ 29,016 Subacute   2,326     2,217     2,094   Total Inpatient $ 33,071 $ 33,686 $ 31,110 Outpatient   13,283     12,748     12,130   Total HRS $ 46,354 $ 46,434 $ 43,240 Operating expenses 32,754 32,069 31,155 Selling, general and administrative 4,365 4,200 4,627 Depreciation and amortization   576     586     537   Operating earnings $ 8,659 $ 9,579 $ 6,921 Operating earnings margin 18.7 % 20.6 % 16.0 %   EBITDA $ 9,235 $ 10,165 $ 7,458   Average number of programs IRF 104 106 104 Subacute   11     11     10   Total Inpatient 115 117 114 Outpatient   29     30     31   Total HRS 144 147 145   End of period number of programs IRF 105 105 103 Subacute   12     11     10   Total Inpatient 117 116 113 Outpatient   29     30     31   Total HRS 146 146 144   IRF discharges 10,575 11,136 10,007 Outpatient visits (in thousands) 258 263 262  

V. Charges/Credits Included in Statement of Earnings

(Unaudited; amounts in thousands, except per share data)       First Quarter 2011         Pre-Tax Impact After-Tax Impact Diluted EPS   Transaction expenses (a) $ 4,787 $ 2,956 $ 0.12  

(a) Charges for investment banking, legal and accounting services associated with the Kindred Healthcare transaction and related matters.

 

VI. Operating Earnings and EBITDA Reconciliation

(Unaudited; amounts in thousands)

      First     Fourth     First Quarter Quarter Quarter 2011 2010 2010   Net earnings $ 22,430 $ 19,303 $ 14,829 Income tax expense 11,024 10,148 8,941 Interest income (12 ) (20 ) (18 ) Interest expense 7,468 7,866 8,500 Other (income) expense, net 14 (312 ) (7 ) Equity in net income of affiliates (163 ) (199 ) (116 ) Gain from discontinued operations   (2,968 )   (673 )   (564 ) Operating earnings (a) 37,793 36,113 31,565 Depreciation and amortization   8,223     7,998     7,218   Consolidated EBITDA (a) $ 46,016 $ 44,111 $ 38,783       Hospital operating earnings (a) $ 25,926 $ 19,162 $ 14,299 Hospital depreciation and amortization   6,052     5,946     5,374   Hospital EBITDA (a) $ 31,978 $ 25,108 $ 19,673     SRS operating earnings (a) $ 7,995 $ 7,372 $ 10,345 SRS depreciation and amortization   1,595     1,466     1,307   SRS EBITDA (a) $ 9,590 $ 8,838 $ 11,652     HRS operating earnings (a) $ 8,659 $ 9,579 $ 6,921 HRS depreciation and amortization   576     586     537   HRS EBITDA (a) $ 9,235 $ 10,165 $ 7,458

 

(a) Certain transaction expenses related to the pending merger with Kindred Healthcare of $4.8 million on a pretax basis in the first quarter of 2011 were not allocated to the Hospital, SRS or HRS divisions.